INR: INR opens at 69.49 as against Fri close of 68.82. Now 69.50 after seeing high of 69.61. Range for the day is difficult to estimate. All depends on RBI. In all likelihood, RBI may now defend 70 in coming days
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The entire move is on account of sharp fall in Turkish Lira (TRY). Although TRY and INR are not driverless correlated. Few important points about Turkey and TRY
1. Plunge in TRY shows the cracks in economy with large borrowing from foreign currency funds. On Fri itself TRY weakened by 18% and this year by 80%.
A country with large foreign currency borrowing become very vulnerable if its currency weakens. Exactly the reason that CHINA also defended CNY in last two days. China has a huge foreign currency borrowing of USD 1.7 trillion.
For India, till now extent of USD borrowing is still “sane”, but increasing. And that is the one of the reason or weakness in INR.
2. Europe runs about USD 70 bn trade surplus with Turkey and any turmoil there would bring risk to growth of EU zone and that is the reason for EUR coming below 1.15. Any slow down in EU has impact on export growth for India
3. Most EM currencies have weakened and therefore umbrella of RBI at 6915 is no more available
4. The good news is that unlike Turkey which has 15% inflation; huge USD borrowing and President at cross roads with US; Turkish Central Bank under political influence, India inflation is 5%; FIIs have turned positive and RBI is still independent.
We see 70 levels and could start export hedging around those levels